Analysts said a protracted Middle East war could significantly worsen the rupee’s outlook, and warned that persistently high energy prices could push the currency above 95 per dollar.
The rupee fell to 92.4325 per dollar, from Thursday’s all-time low of 92.3575. It was down about 0.2% on the day and has lost 1.5% since the start of the Iran conflict.
It would likely have fallen further if not for central bank intervention in the spot, non-deliverable forwards and futures markets. The central bank reopened on Friday, bankers said.
Investors are bracing for a long war, two weeks into the Middle East conflict and Iran’s new Supreme Leader, Mojtaba Khamenei, has vowed to keep the Strait of Hormuz shipping route closed.
In addition to disrupting energy supplies, the war has prompted foreign investors to sell nearly $5 billion worth of Indian assets so far this month, exacerbating the rupee’s woes.
India’s benchmark equity index Nifty 50 has fallen 7% since the start of attacks on Iran by the US and Israel on February 28, and fell more than 1% on Friday.
Weakening the path
Economists and analysts at HDFC Bank, Elara Securities, QuantEco Research and MUFG expect the rupee to remain under pressure in the near term.
If oil prices maintain around $100 per barrel, their current level, MUFG expects the currency to weaken to around $95.50 by the end of the year. Elara Securities largely agreed, predicting a range of 94-95.
“In a downside risk scenario,” MUFG said in a note, referring to the worst-case scenarios, “if oil continues at $120/bbl along with energy shortages, we think USD/INR at 97.50 and even higher looks achievable.”
HDFC Bank expects the rupee to trade in the 92-95 range in the coming months if the conflict continues. Economists in QuantEco research are more pessimistic, predicting that the currency will weaken to 98.5 at the end of March 2027 under the $100 per barrel oil scenario.
MUFG said oil prices at $80 per barrel could limit the rupee’s weakness to around 93.50 by the end of 2026.
